MILAN — Italy’s commercial real estate market — long dormant after years of economic stagnation — seems to be perking up, even as problems like oversupply of old and lower class properties, a top-heavy bureaucracy and a sharp north-south economic divide make it a tricky market for foreign retailers and institutional investors to tackle.
But for those with innovative ideas and for investors in high quality assets — like the recently opened Centro il Centro mall near Arese, just north of Milan — opportunities abound. To top it off, Italian consumers spend — and have kept on spending even through lean times.
These were among the key insights shared by retailers, real estate owners and service providers and financial industry executives gathered here for the first-ever edition of Mapic Italy, the Italian off-shoot of the yearly Mapic conferences, the largest of which is the annual Cannes event, which will take place this year at the French seaside resort from Nov. 16 to 18.
During a keynote opening speech, Oscar Farinetti, founder of Eataly, said Italy is a great school for would-be entrepreneurs: “If I wanted to get good at retail — any type of retail — I would start by getting good in Italy and then exporting my business.”
He said that too many people blame bureaucracy for not starting a business. Bureaucracy in Italy is a problem, he admitted, but not more so than in many other countries – including the U.S., where some states, like New York (where Eataly has one of its most important locations) have thousands of laws. Those who blame bureaucracy for their problems are “lazy,” Farinetti said. “It’s always somebody else’s fault.”
In introductory remarks on Mapic Italy, Fabrizio Valente — founder partner of consultancy Kiki Lab — pointed out that the nation’s shopping centers face some of the same issues as those seen by operators in other countries. For example, he said traffic to retail locations is dropping but that conversion is increasing. As is happening in other markets, people are increasingly searching for what to buy on the Internet and then go straight to buy in-store. Valente also pointed to another challenge faced by mall operators everywhere: how to catch fickle Millennials. In Italy, however, retailers need not worry too much (yet) about losing store visits to clicks: According to Valente, Italy is still behind average in Europe in terms of online shopping, with only four percent of consumers buying on the web.
The will of Italian consumers to keep shopping, even through the darkest times, is one of Italy’s key appeals to retailers and investors alike. Massimo Moretti, president of Italy’s national association of shopping centers, said retail sales in the first three months of 2016 increased 1.6 percent.
Alessandro Mazzanti, chief executive officer of CBRE Italy, gave a presentation titled, “Italy: Is the Retail Upturn Possible?” In 2015, turnover per square meter at Italian malls averaged 3,314 euros, or $3,745 at current exchange, the highest level since 2012 and the third consecutive yearly increase. Rents also increased, but only in 2015 (they declined the three previous years), to 332 euros, or $375, a square meter and are still below 2012 levels as many landlords have granted discounts and lower renewals to tenants.
Mazzanti said that prime developments performed better than others, confirming the credo that “quality always rewards.” He said investor interest in the retail sector remains strong and that “those who believed in Italy’s retail sector have been rewarded.” From a total of 1.4 billion euros, or $1.58 billion, invested in retail development in 2012, Mazzanti said he sees investment reaching 2.5 billion euros, or $2.83 billion, in 2016. Much of the new investment in 2016 to 2018 will be more “selective,” going to top-notch properties, he said.
Strong Italian consumer spending is certainly a key draw with several foreign retailers, including The Estée Lauder Cos. Inc., Swiss fast-fashion player Tammy Weijl and Portuguese accessories maker Parfois, all of which unveiled ambitious expansion plans in Italy at Mapic.
Gianluca Maffoni, corporate retail development manager for Estée Lauder in Italy, said MAC Cosmetics — which already has some 62 locations in Italy — plans to take that number to 100 by 2019, all directly operated. The first MAC store opened in Italy, in Milan, in 1997. Marco Dellapiana, country general manager of Tally Weijl Italy, said the brand — which has been present in the country since 2006 and now has some 200 stores — plans to take that number to 400 by 2025. The company recently debuted its new concept store in the Arese mall, he said, and “it is giving us great satisfaction.” Meanwhile Marco Almeida, senior international expansion manager of Parfois, said the company also has big plans for Italy: currently present with some 20 stores, it plans for 300 locations by 2021.
Some issues faced by global brands in other markets are very present in Italy, too — the effort by retailers to renegotiate rents among them. During a panel discussion titled “Retail Real Estate in Italy: The State of the Art,” Claudia Boni — head of real estate for OVS, one of Italy’s largest retailers — said that these days many landlords are more accommodating when leases are up for renegotiation.
OVS’ firepower must certainly helps: last year, Boni said, the company opened 150 stores — both directly operated units and franchises. She told WWD that over the past three years, rental contracts have trended down by some 15 to 20 percent. She also said that aside from rental renegotiations, landlords are engaging tenants in new ways, for example by investing alongside retailers in order to enhance properties’ value. OVS currently is focused on Italy but the company is interested in Switzerland and in developing its position in France and Spain with both the OVS and OVS Kids brands, Boni said.
Declining rents, Italy’s abundance of smaller towns and cities (which tend to be served by small shopping centers) and a lack of new properties being built are some challenges specific to the Italian market. However, some perceived difficulties about Italy appear to be just that: take the notorious north-south economic divide. In a panel discussion titled “Investing in Italy: Dynamic Assets for International Investors,” panelists mostly concurred this is more a problem of perception than of the reality on the ground.
However, some challenges are more concrete, for example the size of built properties, which in many cases panelists agreed are too small to attract foreign institutional investors who place big sums and have short- to mid-term time frames. “We are struggling to find good product. I think this is one of the major themes of today’s industry in Italy,” said Gaetano Lepore, head of investment management, global real estate Italy, UBS Asset Management Italy.
But interest in Italy is strong: Sandro Campora, country manager Italy for CBRE Global Investors, said that most of his firm’s clients – mostly European, some from the Middle East and some from America – have already invested in the mall markets in France, Germany and Spain and “over the last year and a half are pushing us to take additional exposure to Italy.”
Paolo Sarmento, principal at Meyer Bergman, said “everyone is finding it hard to find investments in Italy. Competitive pressure of capital is so high that it is increasingly hard to find investments.” However the country offers above-average opportunities for those who know where to look: “A lot of investors that can’t find yield in other countries have come to Italy,” Sarmento said.
But size does matter to some. “Foreign investors prefer investing in a 500 million euro shopping mall in Spain,” Simone Spreafico, managing director, advisory and valuation of Duff and Phelps, Italy, told WWD on the sidelines of the discussion. He also confirmed the downward trend in Italian rents, saying that on average new contracts are some 15 to 20 percent below their initial rates.
Unsurprisingly for Italy, perhaps, many operators and retailers said that high quality food and beverage offerings are becoming key attractions in shopping centers. Eatery options already account for some 25 to 35 percent of total sales at the 530 locations in the retail portfolio of Grandi Stazioni, the Italian company that manages some of Italy’s main train stations, including Milan Centrale and Rome Termini. Stefano Mereu, chief commercial officer of the firm, told WWD that in travel retail settings, retailers of accessories and confectionery — with rapid purchase times — tend to work best. Of the brands present at Mapic Italy, Estée Lauder is opening one of its MAC formats in Rome Termini, Mereu said.